Xing Quan Zhang, PhD

Better cities, better economies1

The world reached a turning point in 2008. For the first time in history, more than half its human population, 3.3 billion people, lived in urban areas.

Urban population grew from 220 million to 2.8 billion in the 20th century. The next few decades will see an unprecedented scale of urban growth. By 2030, this is expected to expand to about 5 billion. Such rapid urban expansion will be particularly notable in Africa and Asia where urban population will double between 2000 and 2030. By 2030, the towns and

cities of the developing world will make up 81 percent of urban humanity. Economic growth and urbanization are often positively linked. Cities are the driving force for economic development. Economic growth also stimulates urbanization. These positive relationships are clear in many countries.

This story is adapted from Zhangs article in Urban World, Volume 2, Issue 4, September 2010

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Urbanization and absence of economic growth

Urbanization can occur in the absence of economic growth. For example, in some sub-Saharan African countries, urbanization occured without of economic development. Its processes and patterns are differentiated by institutional settings and policies from country to country and region to region. Despite the growing importance of cities in world affairs and national economic development, the citys position is regarded as marginal to current debates and development controversies. Negative over-urbanization impacts such as the concentration of poverty, slums and social disruption in developing cities are often overemphasized.

Driving force of national economies

They also provide more learning and sharing opportunities and facilitate trade and commerce by providing large market-places. Cities are production and services centers because goods and services are more efficiently produced in high-density urban environments. Cities also provide consumers with more goods and services choices and they are the agents of social, cultural, economic, technological and political change. These advantages make cities more productive than rural areas. No country has achieved sustained economic growth without the growth of cities.

Cities the best hope

However, cities represent the best hope for growth and opportunities as engines of national economic development. They provide large efficiency benefits, which result in unprecedented productivity and competitiveness gains. They are centers of knowledge, innovation and production and services specialization. Cities facilitate creative thinking and innovation. High concentrations of people in cities generate opportunities for interaction and communication and promote creative thinking, knowledge spillovers, new ideas and technologies.

Cities are the driving force of national economies. They generate a disproportionately higher rate of economic growth than rural areas. In developed countries, cities have higher productivity per capita than rural areas. For example, Tokyo has 26.8 percent of the national population and produces 34.1 percent of national GDP. London has 20.3 percent of the population and accounts for 25.4 percent of GDP. Paris, with 16.2 percent of the national population, accounts for 26.5 percent of the national GDP. Dublin with 25.9 percent of the population generates 32.8 percent of GDP. Auckland, Vienna and Helsinki generate about 50 percent higher GDP than their respective population share.

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Engines of migration

Cities in both developed and developing countries play crucial roles in driving national economic development. Statistics show that cities are much more productive than rural areas in developing countries. However, this does not mean that cities are more productive in developing countries. Productivity, is generally higher in developed countries cities. However the productivity gap and inequality of development between cities and rural areas are much larger in developing countries than in developed countries. The large economic productivity gap and imbalance of development between cities and rural areas in developing countries lead to enlarged rural and urban income gaps, which in turn encourages migration to cities to search for better opportunities and prosperity. The massive influx of rural populations to cities creates resource shortages to provide housing and services in cities. The engines of economic development then become engines of migration. Migration that out-paces economic development often results in urban slums. Manila, Karachi, Nairobi, Dhaka and Mumbai are engines of economic development but they are also cities of slums.

National economic growth

The contribution of cities to national economic growth is very significant in developing countries. The economic future of developing countries is highly dependent on the growth of its cities. However, cities are seriously under-resourced to fulfill their potential as drivers of national economic development and prosperity. Cities face many challenges, from accelerating growth, massive influx of rural migrants, deteriorating infrastructure, environmental degradation, social exclusion, violence, under-investment, lack of fiscal freedom and policy choices. Municipal governments often lack financial means to address the vast challenges facing them. For example, of the total government revenues in Canada, the federal government receives 39 percent; provincial governments receive 50 percent and municipal governments only get 11 percent. Municipal governments in most countries have less than a quarter of total government revenues. In many countries such as Afghanistan, Armenia, Australia, Chile, Cyprus, El Salvador, Greece, Honduras, Iran, Jordan, Lesotho, Malta, Mauritius, Mongolia, Morocco, Paraguay, municipal governments receive less than 10 percent of the government revenues. The international development community also ignores the needs of cities. For example, the total urban assistance to developing countries from 1970 to 2000 was about $US 60 billion, about $US 20 per capita - less than a dollar per capita per year.

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Cities work better if they have between-cities efficiencies but also in-cities efficiencies.

City regions

Cities need powers to generate revenue

To maintain vital economic growth and competitiveness cities (1) should have the power to generate revenues and make development decisions; (2) have sufficient investment to provide adequate infrastructure and services, such as transportation, communications, power supply, water and sanitation, housing, as well as financial and business services; (3) should develop and attract high quality human resources for technological innovation, entrepreneurship, and knowledge development; (4) should provide an enabling national environment for market development. Should we focus our attention on the development of cities and ignore the development of rural areas? The answer is no. The huge disparity and divide between cities and rural areas in terms of productivity and wealth are often signs of under-development. Developed countries experiences indicate that more balanced development between cities and rural areas occurs when national development reaches a higher level.

City regions have emerged as most important growth poles. Transport and communications technology improvements stimulate rapid city region developments. As modern products and services become increasingly sophisticated, producers and service providers gain significant advantages from new transaction networks. These networks facilitate products, services, technology and market information exchanges, and foster economic creativity and innovation. Network participants receive tremendous efficiency boosts by being part of tightly-linked and spatiallyconcentrated clusters. These networks, production and services modes foster the development of urban agglomerations and city regions. Today, city regions have emerged as economic development driving-forces in many countries. For example, the Tokyo city region has more than 40 cities and towns with a population of 33.2 million, and generates more than 34 percent of national GDP. The Pearl River Delta in China has a population of 30 million. New York city region has a population of 22 million; Sao Paulo, 17.7 million; Mexico city region, 17.4 million. Changjiang River Delta in China has emerged as the worlds largest city region with a population of about 100 million, generating 26 percent of national GDP.

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Cities and city regions are key sources of economic vitality and innovation for nations. Innovation and high efficiency are increasingly linked to the ability to associate economic activities in city regions. The comparative advantages of cities and city regions make them drivers of national global economic development. Better cities mean better regional and national economies.

Economic contribution of cities in developing countries

The central role of cities in national economies is more significant in developing countries than in developed countries. For example, Sao Paulo has 10.5 percent of the population and generates 19.5 percent of GDP. Shanghai, with 1.2 percent of the population generates 2.9 percent of GDP. Buenos Aires, with 32.5 percent of population produces 63.2 percent of GDP. Mumbai,

with 2 percent of the population, accounts for 6.3 percent of GDP. Nairobi, with 9 percent of the population, generates 20 percent of GDP, Dar es Salaam, with 7.9 percent of the population, accounts for 14.9 percent of GDP. Cities like Shanghai, Manila, Brasilia, Cape Town, Karachi, Nairobi generate more than 100 percent higher GDP than their population share. Dhaka, Yangon, Chittagong, Khartoum and Mumbai generate more than 200 percent higher GDP than their population share. Addis Ababa generates more than 360 percent higher GDP than its population share. Hanoi produces more than 460 percent higher GDP than its population share. Kinshasha and Kabul generate more than 500 percent higher GDP than their population share.

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